Inventory Valuation Methods Used At Redster Manufacturing Company

Inventory is one of the most important assets that the companies possess. It is the primary source of revenue generation and earnings for the company’s shareholders and owners. The value of inventory depends on the inventory valuation methods; therefore, Redster Manufacturing Company’s product Ander presented in this paper. This paper is going to address about different types of inventory valuation methods that has been used to compute the cost of goods sold under perpetual system, FIFO and LIFO cost flow, periodic system, FIFO and LIFO cost flow, weighted average cost, and moving average cost flow.
Periodic System, FIFO cost flow The companies with inventory items of small unit cost update its inventory records at the end of an accounting …show more content…
This is called perpetual inventory.
The excel worksheet included the calculation of the perpetual FIFO method, and the company perpetual FIFO balance shows $ 78,500 dollars, which is the same as the periodic FIFO cost flow $ 78,500 dollars. In all cases where FIFO is used the inventory and cost of goods sold would be the same at the end of the period whether using a perpetual or periodic system.
Periodic System, LIFO Cost Flow LIFO means last in, first out, and it assumes that assets produced or acquired last are the ones that are used, sold or disposed of first (Investopedia, 2015). LIFO valuates that units sell, use or dispose of its newest inventory first, because if an asset is sold for less that it is produced for, then the difference is a capital loss (Kieso, Weygandt, & Warfied, 2014). In opposite, if an asset is sold for more than it is produced for, then it is a capital gain. In addition, it may increases tax liability. The company’s periodic LIFO cost flow is calculated by adding the purchase unit costs, $ 81,000 dollars and $ 25,500 dollars, and the total is $